Paul Krugman Introduces His Blog

Paul Krugman has a new blog, The Conscience of a Liberal (Note: the chart he references is missing, so I've added one from a Piketty and Saez article [data] that I believe matches his description of changes in share of income going to the top 10% over time, and I also included the graph for the top 1% for comparison - Update: The graph is there now and I've added it below):

Introducing This Blog, by Paul Krugman: “I was born in 1953. Like the rest of my generation, I took the America I grew up in for granted – in fact, like many in my generation I railed against the very real injustices of our society, marched against the bombing of Cambodia, went door to door for liberal candidates. It’s only in retrospect that the political and economic environment of my youth stands revealed as a paradise lost, an exceptional episode in our nation’s history.”

That’s the opening paragraph of my new book, The Conscience of a Liberal. It’s a book about what has happened to the America I grew up in and why, a story that I argue revolves around the politics and economics of inequality.

I’ve given this New York Times blog the same name, because the politics and economics of inequality will, I expect, be central to many of the blog posts – although I also expect to be posting on a lot of other issues, from health care to high-speed Internet access, from productivity to poll analysis. Many of the posts will be supplements to my regular columns; I’ll be using this space to present the kind of information I can’t provide on the printed page – especially charts and tables, which are crucial to the way I think about most of the issues I write about.

In fact, let me start this blog off with a chart that’s central to how I think about the big picture, the underlying story of what’s really going on in this country. The chart shows the share of the richest 10 percent of the American population in total income – an indicator that closely tracks many other measures of economic inequality – over the past 90 years, as estimated by the economists Thomas Piketty and Emmanuel Saez. I’ve added labels indicating four key periods. These are:

Income Share of Top 10% Excluding Capital Gains

The Long Gilded Age: Historians generally say that the Gilded Age gave way to the Progressive Era around 1900. In many important ways, though, the Gilded Age continued right through to the New Deal. As far as we can tell, income remained about as unequally distributed as it had been the late 19th century – or as it is today. Public policy did little to limit extremes of wealth and poverty, mainly because the political dominance of the elite remained intact; the politics of the era, in which working Americans were divided by racial, religious, and cultural issues, have recognizable parallels with modern politics.

The Great Compression: The middle-class society I grew up in didn’t evolve gradually or automatically. It was created, in a remarkably short period of time, by FDR and the New Deal. As the chart shows, income inequality declined drastically from the late 1930s to the mid 1940s, with the rich losing ground while working Americans saw unprecedented gains. Economic historians call what happened the Great Compression, and it’s a seminal episode in American history.

Update: This is the actual graph...

Middle class America: That’s the country I grew up in. It was a society without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality. It was also a society in which political bipartisanship meant something: in spite of all the turmoil of Vietnam and the civil rights movement, in spite of the sinister machinations of Nixon and his henchmen, it was an era in which Democrats and Republicans agreed on basic values and could cooperate across party lines.

The great divergence: Since the late 1970s the America I knew has unraveled. We’re no longer a middle-class society, in which the benefits of economic growth are widely shared: between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent.

Income Share of Top 1% Excluding Capital Gains

Most people assume that this rise in inequality was the result of impersonal forces, like technological change and globalization. But the great reduction of inequality that created middle-class America between 1935 and 1945 was driven by political change; I believe that politics has also played an important role in rising inequality since the 1970s. It’s important to know that no other advanced economy has seen a comparable surge in inequality – even the rising inequality of Thatcherite Britain was a faint echo of trends here.

On the political side, you might have expected rising inequality to produce a populist backlash. Instead, however, the era of rising inequality has also been the era of “movement conservatism,” the term both supporters and opponents use for the highly cohesive set of interlocking institutions that brought Ronald Reagan and Newt Gingrich to power, and reached its culmination, taking control of all three branches of the federal government, under George W. Bush. (Yes, Virginia, there is a vast right-wing conspiracy.)

Because of movement conservative political dominance, taxes on the rich have fallen, and the holes in the safety net have gotten bigger, even as inequality has soared. And the rise of movement conservatism is also at the heart of the bitter partisanship that characterizes politics today.

Why did this happen? Well, that’s a long story – in fact, I’ve written a whole book about it, and also about why I believe America is ready for a big change in direction.

For now, though, the important thing is to realize that the story of modern America is, in large part, the story of the fall and rise of inequality.

Comments

[Peter Schaeffer]

"the great reduction of inequality that created middle-class America between 1935 and 1945 was driven by political change"

The chart shows most of the fall occurring in the 1940-1942 period. The political change of the time was war. Domestic social reform was put on hold to win the war.

Why inequality didn't decline under the New Deal and then crashed as war production ramped up is unclear. My guess is that slack labor markets yield high inequality and very tight markets even out the income distribution. However, the fall in inequality is so sharp and fast that even WWII may not suffice as an explanation. Perhaps the combination of war production and price/wage controls may be correct.

I have seen some claims that income inequality decline sharply during WWI. The Piketty/Saez data support this assertion.

[Gil]

I agree that the middle class is a 20th century phenomenom. So too, the disappearance of great wealth and poverty. However I'm sure free-marketers would point out that such inequality simply reflects the extreme abilities (or lack thereof) between the people in a society.

[Oupoot]

Its interesting what role the various wars have played in the data. While WWII (which was won) reduced inequality, the Vietnam war (which was lost for all practical purposes) gave rise to increased inequality. And given the many assertions about the War in Iraq, I can only guess that it would fuel further inequality in the US. Or maybe the backlash from this war would fuel a desire for greater equality. Interesting decade that awaits in this respect.

[Mark Thoma]

I just added an additional graph showing the changes for the top 1%.

[Bruce Webb]

Random notes:

On wartime drops in inequality. War taxes? When were they enacted and to what degree?

Krugman's blog? Welcome indeed. But on his first thread he is replying to each comment. In that way lies madness as I am sure our host can confirm. You can slam down controls or spend every waking moment monitoring your blog but the only way to preserve a semblence of life in the latter case is to hope nobody comes around. That is not going to happen. Either Prof. K needs to have an army of trusted interns on hand or let the blog take on a certain life of its own. The days of having a genteel discussion with a handful of correspondants is over, if that is you have anything interesting to say. Paul can ask Duncan on this one. "Thread" is good enough to gain 469 comments on Eschaton.

[reason]

Bruce Webb...
Bruce I just clicked on the link and cannot see any comments on the blog. Where do you see them?

[real person from the real world]

It's great to have Paul doing a blog. I hope he has the time to joust with the Ayn Randian YOYOs. I also hope I get to read more of his writing. Since the NYTimes now charges for reading anything worth reading, and I make squat. As far as the comment above, that someone is "sure" the inequity is sole due to ability differences, I say b.s. Just recently there was an article about Wall Street Types doing the math, and deciding that an MBA was not worth it. I also see people who choose the right jobs, do fine, without extensive education, while some educated people just end up so so, and in debt. Technology has been more an opportunity for those in position to make money on labor arbitrage. Technology has not always been a boon to businesses, and many are still struggling with figuring out how to use it.

[spencer]

The Times just dropped having to pay to read the editorial page. It is now free.

[ken melvin]

The undoing of the New Deal. They couldn't stand for the working class to have a fair share.

[save_the_rustbelt]

Will Kruman admit that his trade policies hastened the inequality?

Stay tuned!

[pgl]

Paul Krugman has a blog? Great news!

[paine]

Peter Schaeffer says...

great stuff

indeed it is the arsenal of democracy phase of the new deal that did the trick

and indeed the price admin as well as chock full employment
are key factors
as is the huge productive construction project
the arsenal required

i propose we copy same
in outline
and use it to fight the dirty planet war
to a VE day victory on earth

call it the greenhouse of democracy

[paine]

that pk tries to answer
shows a good heart and a sense of belonging to the people
not the elite

contrast him to...
that charles addams character brad delong

[calmo]

Not that I'm a fan of BDL...not like anne at any rate, but this distraction that he has for paine...is a distraction for me.
Tis.
paine, let him go forchrisake
so that we can enjoy your posts
without scratchin...

[anne]

Paine -

http://books.guardian.co.uk/shockdoctrine/0,,2159184,00.html

Notice the excerpts from Naomi Klein's new book, "The Shock Doctrine" which I will begin in a couple of days and from a lecture I was sent seems promising.

[S Brennan]

I wonder if any of conservative keepers of the flame will be honest enough to note that all the great depressions/recessions, save the Reagan recession occurred when inequality was far higher than the golden age of progressive taxes and effective government regulation of utilities and essential goods and services?

No...I didn't think so.

[Patricia Shannon]

I'm happy to see Paul Krugman has his own blog. I found this site by looking for articles by him. So, in that respect, I'm glad he didn't start his blog earlier :)

Gil says...
I agree that the middle class is a 20th century phenomenom. So too, the disappearance of great wealth and poverty.

For most of human history, people lived in small hunter-gatherer groups. We can't know their "political" structure, but from what I've read,such groups today are usually equalitarian. As one source said, if someone gets bossy, the rest of the group can just pick up and leave during the night, which you can do when you don't have all land around you already owned by somebody else. That's freedom. To say we are free to do what we want in modern society doesn't make sense.

[Bruce Webb]

reason, I don't know what is going on with comments at the Krog. I was just reading them a few minutes ago, and comments are enabled, but after reading your comment now they seem to have vanished with the comment count showing as 0 on all stories even while I still have some displaying out of my History.

I suspect Prof K may be rethinking his policy. There is simply no way to liveblog when you are as famous as he is, even if he wasn't a right wing target. There just are not enough hours in the day.

[MT57]

"the story of modern America is, in large part, the story of the fall and rise of inequality."

A story perhaps, but in large part the story of modern America? - ridiculous. This is the story he wishes to focus on and the story he wishes others would focus on. But that's all. His introductory statements about an idyllic childhood that transitions to his political views tell us that he has a personal psychological reason to focus on it: some factors in his personal life that make him nostalgic, or an innate resistance to change, or maybe a desire to inflate his relative importance in the commons by imagining hinself to be a surrogate everyman, who knows. But the rest of the country has their own narratives and those may lead in totally different directions and be equally valid explantions of life in America and may lead to even better policy.

[Mark Thoma]

Maybe I can help. The blog has been there for quite awhile, but it used to be called "Money Talks." In Money Talks, PK would (mainly) respond to reader email. I'm pretty sure that's what Bruce saw because I checked just after his first comment, and the comment count on the new blog post was zero. If you scroll down past the blog post from the main page, the old responses to readers are still there.

[paine]

calmo
i'll take your advise
no more bradington bear

[Patricia Shannon]

I am Euro-American, and I would say Paul's perceptions would apply more to Euro-Ams than Afro-Ams. Those were the days of legal segregation and suppression of Afro-Ams in the U.S. southeast. Although even for Afro-Ams, many of the poor owned land and were able to grow their own food.

says...

Sorry, but this is not pomo, and the different 'narratives' do have differing degrees of validity. I'm quite sure that one popular narrative - popular among a significant segment of Americans - is the narrative of a country 'turning away from God'. Or 'turning away from basic values'. Or some riff on moral or ecclesiastical turpitude. Does anyone seriously imagine that this has anywhere near the exlplanatory power that Krugman's take has? I don't think so, and further, would be enormously tempted to instantly dismiss anyone who thinks otherwise as severely lacking in credibility.

Oh, and do try to stop reading some wretched motivations into Krugmans sentences. Or, if you must, please keep your speculations to yourself. I have a quite different take the matter, but I feel no particular need to share it with anyone else, nor can I think of a logical reason to do so.

[Bourgeois Liberal]

"A story perhaps, but in large part the story of modern America? - ridiculous."

So I guess there have been no significant changes in the country's income structure over the past 80 years.

Okaaaay!

Besides, there is something more to Krug's argument besides some emotional need (though ad hominem attacks disguised as amateur psychoanalysis can come in handy when one has nothing constructive to add). The relatively egalitarian period of which K. speaks was when a single parents' paycheck could pay for a whole family's basic needs, pay for a house, pay for a car, and help pay for the kids' college education.

No doubt some would see this era as America's Long Dark Totalitarian Night, with last thirty years serving as our liberation from socialist servitude. But hey, there's no accounting for taste, is there?

[anne]

Bourgeois Liberal, nicely done.

[Peter Schaeffer]

Bruce Webb,

War taxes were very heavy and very progressive. However, the charts are for pre-tax income. Piketty and Saez argue that progressive taxation prevented the (re)accumulation of fortunes ravaged by the depression. However, that's a long term factor irrelevant to the wartime "great compression".

Please read Piketty and Saez in the original for thier model of progressive taxation as a restraint on capital accumulation. I can not do justice to it, in a few sentences. I am not sure if I agree or disagree with their model.

[lonesome moderate]

Middle class America: That’s the country I grew up in. It was a society without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality

I'm roughly the same age as Krugman (six years younger), and in some ways my memories are different from his. The country I remember was indeed one of widely shared prosperity, but also one with a sizable poverty problem that nobody seemed to be able to solve. For decades we seemed to be stuck at about 20% of the population mired in near-permanent poverty, while everything we did to try to solve the problem either didn't help or made the situation worse. People born in inner city slums, or in backward small towns in the South, seemed condemned to an endless cycle of living out their lives that way, while giving birth a (large) generation of even more disfunctional children. The America I grew up in was also a much more dangerous place than that of today, especially in the poorest areas. This of course was one of the reasons it was so hard to get out of poverty.

We made remarkable progress in reducing crime and poverty in the eighties and nineties. In particular, it seems to have became easier for someone born in poverty to get out of it. Nowadays we're going in the wrong direction again, but that doesn't mean we should sugarcoat the reality of what things were like 30 or 40 years ago.

[BJ Feng]

We have to talk more about culture and how to change that for low-income people. The topic is taboo, but Bill Cosby did try to address the problem to an unsympathetic crowd at a NAACP gathering. It's simply bad for young blacks who get good grades to be called too white or acting white. This disincentive has to be stopped, and since the negative is social, the society that produces the negative has be to changed. There is also the positive social reinforcement of being a thug, or portraying yourself as a thug. Only a concentrated effort by leaders can explain to the youth that the thug lifestyle largely a fictional one put out by the music industry to sell records. Few people can be successful acting like a thug, and most musicians are not thugs in real life, they are instead good businessmen but have a stage alter-ego. Why this isn't being dealt with is puzzling. I see this as the equivalent of the social prohibitions on women in the early 1900's. The women's right movement changed society so that women can now work at "male" jobs, and aren't as constrained. The same effort should be made in this area.

says...

I don't think PKs "blog" is really a blog. I made a comment addressed to other commenters and it has been edited out. All the comments seem to address the original post. More like an extended letters to the editor than a blog.

[Peter Schaeffer]

"I don't think PKs "blog" is really a blog"

This is true. Check out the dates and times on the posts. There have been *no* posts since 6:03 PM on the 19th. Really? I wrote a post pointing to Polarized America and Krugman's reference to it. Didn't make it online.

Filtered letters to the editor is a good description.

[MT57]

For Bourgeois Liberal and "says",and their cheerleader,

You of course have a first amendment right to overstate my argument in order to counter it. Did I say there has been no inequality? Of course I did not. What I said was it was an overstatement to contend that the story of inequality was the story of modern America.

Are there other narratives? You seem to agree there are. You then imagine ones you find dismissible, although other citizens, whom you don't appear to value very much, would adopt. So try this non-moral economic story of modern america instead. The era of the 1950's on which Krugman focuses his narrative was a bubble in American purchaing power relative to the rest of the world, due to the destruction of all competitor developed economies in WWII and the time to took to rebuild them, as well as the much smaller size of the economies of less developed countries. As a result, a large number of American workers enjoyed a brief and unlikely to be repeated era in which, regardless of their own productivity and education, they were free of competition from immigrants, their products had little competition from imports and their employers were also the dominant exporter. However, as a result of national security strategy to combat communism, the US made the choice to help rebuild many competitor economies, and a variety of factors stimulated the communist world to embrace economic competition also. Moreove, domestically, many new categories of workers entered the labor force - minorities and women who had not for avarious reasons participated in the 1950's golden era. As a result of all these factors, the number of American workers who could obtain a purchasing power premium has shrunk steadily and now only a few in particular niches of the economy can do so. The bubble of economic comofort that American workers lived in c. 1953 has burst and the ratio of successful people to less successful people has shrunk. As well, we have added many regulations that have economic costs to employers, whatever their benefit, and the health advances and the success of welfare programs for the elderly have imposed a variety of additional taxes and costs on employers that compete with wage claims for the reveneu of businesses. Thus, I submit, the story of modern america is a complex one, with many narratives of a non-moral nature, of which the income line is merely the bookkeeping method.

Unfortunately, having grown up, been nurtured and educated in that bubble of economic comfort, many baby boomers like Krugman misperceive it to be a fundamental condition of life as opposed to a historical singularity.

The healthiest thinking will be to take the present as it is and figure out with analytical rigor what can be done to make the future better. To offer simplistic nostalgic narratives was a insult to american intelligence when Reagan did it and is now when a leftist succcumbs to it.

[Peter Schaeffer]

Update, all of the subsequent PK posts have no comments. This isn't really a blog site at all, at least so far.

[tonyhamm]

Simple - the periods of rising standards of living co-incide with low immigration enabling higher shares of production (wages) for domestic workers.

The production in the economy is divided between its factors - property and labour. The greater supply of labour enables a great return over all production to property, while lowering the claims to labour.

Fitting an immigration curve, or using dates of policy changes of great immigration laxity or strictness you will see the population and labour force effect and inequality.
During the 1940s, 50s immigration was very tight.

In 1970s it went very lax, and this co-incided with growing inequality.

[DLL]

"Unfortunately, having grown up, been nurtured and educated in that bubble of economic comfort, many baby boomers like Krugman misperceive it to be a fundamental condition of life as opposed to a historical singularity."

Agreed.

[Prem Kumar]

Sir,
Congrats on your success.I live in India & by newspaper i came to know who u r & why u got the NOBEL PRIZE for ECONOMICS ? You deserved it.But don't you think that people like you who can give excellent theories for the world over can also change it.In newspapers here they say you saw it coming the Doomsday of Economics of American & world market, but why was nothing done in advance to stop it.If ur theories were so powerful then why nothing was done.I am a layman in economics field so please excuse me if i make any mistakes in the comments.Also for how will this crises exist in the world.what r u doing in order to correct this imbalance of money equation so that this crises does not happen again.Thank you